Estate Tax Flashcards
(27 cards)
What is the primary purpose of estate planning?
To ensure assets are transferred according to the decedent’s wishes, minimize taxes, and provide for beneficiaries.
What is the federal estate tax?
A tax on the right to transfer property at death, calculated on the value of the decedent’s gross estate minus allowable deductions.
What is the basic formula for calculating estate tax?
Gross Estate – Deductions = Taxable Estate; Taxable Estate + Post-1976 Taxable Gifts = Estate Tax Base; Apply tax rates, subtract credits = Net Estate Tax.
What does IRC Section 2033 include in the gross estate?
All property the decedent owned at death: cash, securities real estate, personal property, accrued income, etc.
Give examples of itams included under IRC 2033
Rental income accrued before death, cash surrender value of life insurance owned on another’s life, state income tax refunds, medical insurance reimbursements, awards for pain and sufferinfs.
What are dower and curtesy (IRC 2034)
Dower: Wife’s right to a life estate in husband’s land at his death
Curtesy: Husband’s right to a life estate in wife’s land at her death.
What is included under IRC 2035?
Gift tax paid and certain property transferred within 3 years of death (not the actual gifts)
What is a transfer with a life estate (IRC 2036)?
Property transferred where enjoyment depends on surviving the decedent, and the decedent retained a reversionary interest.
What is a transfer taking effect at death (IRC 2037)?
Property transferred where enjoyment depends on surviving the decedent and the decedent retained a reversionary interest >5%.
What is a revocable transfer (IRC 2038)?
Property subject to the decedent’s power to alter, amend, revoke, or terminate.
When does IRC 2038 NOT apply?
If transfer was for full and adequate consideration, power can only be exercised with consent of all parties, or power is held solely by another.
How are annuities treated (IRC 2039)?
Straight life annuity: Not included. Survivorship annuity: Included.
How is joint property included (IRC 2040)?
With spouse: Only half included. With non-spouse: Portion contributed by decedent is included.
What are powers of appointment (IRC 2041)?
General power of appointment is included, except if subject to an ascertainable standard (health, education, maintenance, support).
When are life insurance proceeds included (IRC 2042)?
If the decedent had incidents of ownership or proceeds are payable to the estate.
At what value are estate assets included?
Fair Market Value (FMV) at date of death or alternate valuation date (6 months after death).
When can the alternate valuation date be used?
Only if it lowers both gross estate and estate tax due; applies to all assets unless sold or “wasting” assets.
What are the main deductions from the gross estate?
Funeral expenses, debts, administrative expenses, marital deduction, charitable deduction, state death taxes.
How is the taxable estate calculated?
Gross estate minus deductions
What is the estate tax base?
Taxable estate plus post-1976 taxable gifts.
What credits can reduce the estate tax?
Unified credit, credit for prior transfers, foreign death tax credit.
What is the Unified Credit in estate tax planning?
The Unified Credit is a tax credit that offsets the federal estate and gift tax liability up to a certain exclusion amount (the “applicable exclusion amount”). It allows an individual to transfer a set amount of assets free from federal estate and gift tax during life and at death.
What is the Credit for Prior Transfers?
This credit reduces estate tax when property included in a decedent’s estate was also included in the estate of someone who died within the previous 10 years, and estate tax was paid on that property.
What is the Foreign Death Tax Credit?
This credit is available for estate taxes paid to a foreign country on property included in the U.S. gross estate, to prevent double taxation by both the U.S. and a foreign country.
